Help for mortgage prisoners
New rules from the Financial Conduct Authority (FCA) mean lenders have more flexibility to help those classed as mortgage prisoners switch mortgages. These new rules are based on your mortgage payment history, rather than an affordability assessment.
Who is a mortgage prisoner?
If you took out a mortgage before 2014 you may find it hard to switch to a better deal due to new affordability rules introduced by the FCA. Affordability tests or assessments look at your income and expenses to determine if you can afford the mortgage repayments. With these being much stricter now than in 2014, you may have passed the test previously but may not now, even if you’re up to date with your payments.
How will the changes help people?
Lenders can now use a modified affordability assessment, which means they can choose not to ask for evidence of your income and expenses or apply a stress test. A stress test requires a lender to check that they can continue to make payments should the interest rate on your mortgage rise.
Mortgage lenders can carry out a modified affordability assessment if you:
- have a residential mortgage on your home
- are up to date with your mortgage payments and have been for the last 12 months
- do not want to borrow more – other than to pay for any fees associated with the mortgage
- are not looking to move home.
Lenders can use these rules to offer you a new mortgage as long as it will be more affordable for you than your current deal.
However, lenders do not have to use the new modified affordability assessment. Some will choose to help you by making other changes to the way they assess affordability. The offer of any new mortgage is a decision for lenders, so what is on offer will vary between firms and not all mortgage prisoners will be eligible for all mortgages.
What other switching options are available?
If you’re able to demonstrate the mortgage is affordable including repayment plans, there are several other ways a lender could help. For example, a lender could:
- simplify how they check you can afford your mortgage if interest rates go up
- consider other options for older borrowers, for example retirement interest-only mortgages or equity release
- consider total or partial conversion to repayment from an interest-only mortgage
- look at each application on an individual basis instead of using an automated approach.
Are you eligible under the new rules?
Lenders will use a variety of different criteria to determine whether they will accept your mortgage application. These vary from lender to lender, but might include:
- Minimum of 5 years remaining on the mortgage
- Remaining mortgage of at least £50,000
- Minimum property value of £60,000
- A loan to value (the amount you want to borrow compared to the value of the property) of no more than 85%
- The mortgage being on the borrower’s existing home (not available for home movers or for buy-to-let)
- No changes to the borrowers (no borrows added or taken off the mortgage)
- No missed mortgage payments in the last 12 months. This does not include payment deferrals agreed with lender and taken due to the coronavirus outbreak.
If you’re on an interest-only mortgage
If you’re on an interest-only mortgage, you will need to have a repayment plan to repay the outstanding mortgage at the end of its term and be able to provide proof of your ability to repay.
If you don’t have this, you should speak to your existing lender to discuss your options. This might include switching part of your mortgage to repayment, which will increase your monthly payments but leave you in a better position to repay your mortgage later.
If you’re worried you won’t be able to repay the mortgage, you should act now to understand your options and what you can do to improve your position. Taking action early will put you in the best possible position at the end of your mortgage or improve your options to get a new better mortgage deal in the future.
If you would like Independent Financial Advice about your mortgage, and how these changes to lenders flexibility may affect you, then please get in touch with a member of our mortgage team on 01273 208813 or you can email:
Hove – Stefan Olingschlaege
Bognor – Trevor Schooley
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IEP Financial is authorised and regulated by the Financial Conduct Authority (FCA).
Your home may be repossessed if you do not keep up repayments on your mortgage. The content of this publication is for information only. It does not represent personal advice or a personal recommendation and should not be interpreted as such. Please do not act upon any part of it without first having consulted an Independent Financial Advisor.
